ACC303 Company Accounting: Consolidation Memorandum Analysis

This memorandum, prepared for the board of directors, provides a comprehensive overview of the technical aspects of consolidating financial accounts for a group of companies. It explains the concept and essence of consolidated financial statements, emphasizing the importance of presenting a true financial performance and position of the group. The memorandum details the statutory requirements, including AASB 10 and IFRS 10, which mandate the preparation of consolidated financial statements. It also discusses the availability of key information in group financial reports, such as corporate governance practices, audit committee details, and sustainability measures. The analysis covers acquisition and goodwill, intercompany transactions, and the importance of adhering to accounting standards. The memorandum concludes with a summary of the key takeaways and the significance of proper accounting treatment in consolidated financial statements.

Running head: COMPANY ACCOUNTING
Company Accounting
Name of the Student:
Name of the University:
Author’s Note:

1COMPANY ACCOUNTING
MEMORANDUM
To: The board of directors
From: [Name, Designation]
Date: 26 August 2019
Subject: Technical aspects of consolidation
Introduction:
This memorandum is prepared to explain the essence and requirements of consolidation
of financial accounts for group of companies and statutory compliances in connections with the
consolidation of accounts as per the respective accounting standards. Business for a group of
companies, it is essential that the overall financial performance and financial position of the
company be presented in a consolidated manner, which will exhibit the true financial
performance and the true financial position of the group.
Concept of consolidation of financial statement:
Consolidation of financial statement means, presentation of the financial statement
including all the companies as a whole. Individual financial performance and financial position
of all the companies of a group are summed up and presented in the consolidated financial
statement. It exhibits the actual financial performance and financial position of the group as a
whole.
Essence of consolidated financial statement:

2COMPANY ACCOUNTING
A group of companies have various business units located into various places of the
country even in abroad. Each of the company is measuring their financial performance and
presenting their financial position individually in compliance with the respective accounting
standards and statutory requirements of the respective country. Not all the companies in a group
might have the same profitability and same financial strength. Investors or stakeholders cannot
build a correct perception about the financial performance and position of the group unless the
individual financial performance and position are not added together. Therefore, there is an
essence of the consolidation of the financial performance and position of the group. There are
certain legal and statutory requirements and to comply with those requirements all the parent
companies need to prepare the consolidated financial statement despite having individual income
statement and statement of financial position for each of the companies in a group. As per the
provision of AASB 10 and IFRS 10, it has been made mandatory for the parent companies to
prepare and publish consolidated financial statement for their business operations including their
subsidiaries.
Availability of key information in the Group Financial Report:
Company’s group financial statement reveals the company’s corporate governance
practices and policies, which are adopted for operation of the business. From the group financial
statement of the Transurban Group, their corporate governance practices can be easily
understood. In page number 15 of the group financial statement of the Transurban Group, in the
Governance section, some of their governance related practices have been disclosed, such as,
their policies and management approaches towards the investors and stakeholders and the role of
the board which is to provide overall strategic guidance for the company and their effective
oversight. Disclosure of corporate governance practices in the annual report gives a clear idea to

3COMPANY ACCOUNTING
the stakeholders about the transparency of the management and that is why it is important to
disclose some of such information in the annual report. It is a common practice that companies
prepare a corporate governance report. It can be observed from the annual report of the
Transurban Group Annual report that they have provided a link to view their corporate
governance report.
From the group financial statement of the company, constituents of their audit committee
and the respective practices and policies can be identified. In the Group Annual report of the
Transurban Group also, details of their auditor and their appointment and scope of activities have
been disclosed. This information can be identified in the Auditor section in the annual report or
in the auditor’s report section of the annual report. For more details about the audit committee
their appointment and functionalities and scope of audit, the corporate governance report can be
referred.
Sustainability of the company means the company is successfully serving the purpose of
their existence for a long time and it is expected that they will be continuing with the same trend
with a perpetual succession. Therefore, sustainability of the company depends on their
operational and financial achievements or success. To measure the sustainability of the company
various financial and non-financial ratios can be computed and analyzed. Some of the
companies, follows a practice of publishing a sustainability report focusing on their
achievements and nonfinancial measures behind their success, though their sustainability can be
measured from the information available in their annual report. Sustainability is the measure of
growth and fair operation of the company. It is required to be mentioned in the annual report
because stakeholders make an idea about the true and fairness of the company based on the
sustainability.

4COMPANY ACCOUNTING
Solvency is the measure of the liquidity or capacity of debt repayment. Short-term
solvency is computed by comparing the short-term assets and shirt term liabilities on the other
hand long-term solvency is computed by comparing the long-term assets and long-term
liabilities. All those information relating, to the assets and liabilities of the company, can be
gathered from the group balance sheet of the company. Hence, all those information are available
in the group annual report of the Transurban Group. There are some other measures of solvency,
which is the risk coefficient. It can be measured by the fluctuation in the share price. From the
annual report market price of the shares are presents as on a particular date and using that such a
risk analysis could not be conducted.
Information relating to Acquisition and Goodwill:
Goodwill is the excess amount paid over the net value of identifiable of the target
company on acquisition of the business. In the group balance sheet of the Transurban Group, a
total goodwill of $466 million can be identified and it is reported at cost only, and no
accumulated amortization can be found from the balance sheet. It can be observed from the
financial statement and notes to the financial statement that there is no change in the total value
of goodwill since the year 2017.
It can be observed from the group annual report of the Transurban group that, there is a
payment for acquisition of Target Company in the year 2018 for an amount of $846 million, but
there is no such gain or loss on bargain purchase. The acquisition was at cost and it was for the
same of the value of net identifiable assets of the company. It can be observed from group annual
report of the company that the company has a predefined policy of impairment testing for the

5COMPANY ACCOUNTING
intangible assets but no such impairment of goodwill in the year 2018 or any accumulated
impairment for goodwill could be found from the group annual report.
Other relevant matters from the group annual report, which need due consideration:
Consolidation of income statement and the statement of financial position need to be
prepared with due care and in compliance with the respective accounting standard. AASB10
deals with the procedures, practices and requirements of the consolidation of the financial
statement. Intercompany transactions within the group are an important that needs due care and
consideration while preparing the consolidated financial statement of the group. Some examples
of such intercompany transactions are purchase and sale of inventory within the group, sale of
fixed assets and intercompany loans and advances. All the effects of intercompany transactions
need to be eliminated in the consolidated financial statement. Hence, proper accounting
treatment should be given in the consolidated statement for unrealized profit on inventory held
out of sale within the group and intercompany debts must be offset before preparation of the
group financial statement. Presentation of the financial statement and disclosures in the financial
statement must be in accordance with the statutory requirements of the respective accounting
standard. It can be observed in the group annual report of the Transurban Group that all such
disclosure requirements have been met and the presentation is fair enough for the understanding
of the investors and stakeholders.
Conclusion:
From the above discussion and analysis, it can be concluded that, group financial
statement or the consolidated financial statement is the process of presentation of the financial
performance and position of the companies together as a group. In consolidating such financial

6COMPANY ACCOUNTING
performance and position, proper accounting treatment and accounting guidelines must be
followed and it must be in line with the requirements of the respective accounting standard.
Signature
[Name, Designation]

7COMPANY ACCOUNTING
Bibliography:
Adesina, J.B., Nwidobie, B.M. and Adesina, O.O., 2015. Capital structure and financial
performance in Nigeria. International Journal of Business and Social Research, 5(2), pp.21-31.
Ball, R., 2016. IFRS–10 years later. Accounting and Business Research, 46(5), pp.545-571.
Berger, P.G., Minnis, M. and Sutherland, A., 2017. Commercial lending concentration and bank
expertise: Evidence from borrower financial statements. Journal of Accounting and
Economics, 64(2-3), pp.253-277.
Bergmann, A., Grossi, G., Rauskala, I. and Fuchs, S., 2016. Consolidation in the public sector:
methods and approaches in Organisation for Economic Co-operation and Development
countries. International Review of Administrative Sciences, 82(4), pp.763-783.
Bini, M., 2019. Models of mandate in public audit: An examination of Australian
jurisdictions. Public Money & Management, 39(3), pp.201-208.
Gluzová, T., 2015. The adoption of IFRS 10 and its impact on the scope of consolidation. Acta
Academica Karviniensia, 4, pp.18-27.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Ogura, Y. and Uchida, H., 2014. Bank consolidation and soft information acquisition in small
business lending. Journal of Financial Services Research, 45(2), pp.173-200.
Standard, I.A., 2015. Presentation of Financial Statements. Balance Sheet, 54, p.80A.

8COMPANY ACCOUNTING
Transurban Group Annual Report 2018. (2019). [ebook] Available at:
https://www.transurban.com/content/dam/investor-centre/04/2018-Annual-Report.pdf [Accessed
25 Aug. 2019].